UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934
                           For the fiscal year ended December 31, 1999
                                                       OR
[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

      For the transition period from                  to
                                     ----------------      --------------

      Commission file number       0-22103

                   HEMLOCK FEDERAL FINANCIAL CORPORATION
--------------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

                 Delaware                                36-4126192
--------------------------------------          ---------------------------
(State or other jurisdiction of incorporation           (I.R.S. Employer
               or organization)                      Identification No.)

5700 West 159th Street, Oak Forest , Illinois                60452
--------------------------------------------------------------------------------
(Address of principal executive offices)                  (Zip Code)

Issuer's telephone number, including area code:     (708) 687-9400
                                                ------------------------


           Securities Registered Pursuant to Section 12(b) of the Act:
                                      None
           Securities Registered Pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.01 per share
--------------------------------------------------------------------------------
                                (Title of class)

         Check whether the issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such requirements for the past 90 days. YES
X NO ___

         Check if there is no  disclosure  of  delinquent  filers in response to
Item  405 of  Regulation  S-B  contained  herein,  and  no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information  statements  incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]


         State issuer's revenues for its most recent fiscal year: $14.8 million.

         The aggregate  market value of the voting stock held by  non-affiliates
of the  registrant,  computed by  reference  to the average of the bid and asked
prices of such stock on the Nasdaq Stock  Market as of March 1, 2000,  was $21.8
million. (The exclusion from such amount of the market value of the shares owned
by any  person  shall not be deemed an  admission  by the  registrant  that such
person is an affiliate of the registrant.)

         As of March 1, 2000, there were issued and outstanding 1,452,486 shares
of the Issuer's Common Stock.


   Transitional Small Business Disclosure Format (check one):  Yes       No   X

                       DOCUMENTS INCORPORATED BY REFERENCE

         Parts II and IV of Form 10-K - Annual  Report to  Stockholders  for the
fiscal year ended December 31, 1999. Part III of Form 10-K - Proxy Statement for
2000 Annual Meeting of Stockholders.


<PAGE>



                                     PART I

Item 1.  Business

General

         Hemlock Federal Financial Corporation  ("Hemlock" or the "Company") was
formed in 1997 by Hemlock  Federal  Bank for Savings  ("Hemlock  Federal" or the
"Bank")  under the laws of Delaware  for the purpose of becoming the savings and
loan holding company of the Bank. The Company's  business consists  primarily of
the business of Hemlock Federal.

         Hemlock   Federal  is  a  federally   chartered   stock   savings  bank
headquartered in Oak Forest, Illinois.  Hemlock Federal was originally chartered
in 1904. In 1959, Hemlock Federal converted to a federal mutual charter. In 1997
Hemlock Federal  converted from a mutual to a federally  chartered stock savings
bank. Hemlock Federal currently serves the financial needs of communities in its
market  area  through its main office  located in Oak Forest,  Illinois  and its
three branch offices located in Oak Lawn, Lemont, and Chicago.  Its deposits are
insured up to applicable  limits by the Federal  Deposit  Insurance  Corporation
("FDIC").  At December  31,  1999,  Hemlock  Federal had total assets of $228.46
million,  deposits of $150.58  million and equity of $25.72 million (or 6.56% of
total assets).

         Hemlock   Federal  has  been,   and  intends  to  continue  to  be,  an
independent,   community  oriented,  financial  institution.  Hemlock  Federal's
business  involves  attracting  deposits from the general  public and using such
deposits,  together with other funds, to originate primarily one- to four-family
residential mortgages and, to a much lesser extent,  multi-family,  consumer and
other loans primarily in its market area. At December 31, 1999,  $91.51 million,
or 78.03%,  of the Bank's total loan portfolio  consisted of one- to four-family
residential  mortgage loans. The Bank also invests in mortgage-backed  and other
securities and other permissible investments.

         Subsequent  to December 31,  1999,  the Company  announced  that it had
entered into a definitive  agreement providing for the merger of Midwest Savings
Bank  ("Midwest")  into the Bank.  Midwest,  located in Chicago,  Illinois,  had
approximately  $47.7  million in assets,  $31.1  million  in  deposits  and $3.4
million in  stockholders'  equity at September  30, 1999. It operates out of two
offices serving Bolingbrook and Chicago, Illinois. The transaction is subject to
Midwest's  stockholders approval and regulatory approval. The Company expects to
complete the acquisition in the second quarter of 2000.

         The  executive  offices  of the Bank are  located  at 5700  West  159th
Street,  Oak  Forest,  Illinois  60452-3198  and its  telephone  number is (708)
687-9400.  Unless the context  otherwise  requires all references  herein to the
Bank or the Company include the Company and the Bank on a consolidated basis.

Forward-Looking Statements

         The Company has made, and may continue to make, various forward-looking
statements  with respect to earnings,  credit  quality and other  financial  and
business matters for periods subsequent

                                        2

<PAGE>



to December 31, 1999. The Company cautions that these forward-looking statements
are  subject  to  numerous  assumptions,  risks  and  uncertainties,   and  that
statements for subsequent periods are subject to greater  uncertainty because of
the  increased  likelihood  of changes in  underlying  factors and  assumptions.
Actual results could differ materially from forward-looking statements.

         In addition to those  factors  previously  disclosed by the Company and
those factors  identified  elsewhere  herein,  the following factors could cause
actual  results  to  differ  materially  from such  forward-looking  statements:
pricing pressures on loan and deposit products; actions of competitors;  changes
in local and national economic conditions;  customer deposit  disintermediation;
changes in customers'  acceptance of the  Company's  products and services;  the
extent and timing of legislative and regulatory actions and reforms.

         The Company's  forward-looking  statements speak only as of the date on
which such statements are made. By making any  forward-looking  statements,  the
Company assumes no duty to update them to reflect new, changing or unanticipated
events or circumstances.

Lending Activities

         General.  The principal lending activity of the Bank is originating for
its portfolio  fixed and to a lesser extent,  adjustable  rate ("ARM")  mortgage
loans secured by one- to four-family  residences located primarily in the Bank's
market  area.  To  a  much  lesser  extent,   Hemlock  Federal  also  originates
multi-family  real  estate,  consumer  and other  loans in its market  area.  At
December 31, 1999, the Bank's net loans receivable totaled $117.00 million.

         Under  federal  law,  the  aggregate  amount of loans  that the Bank is
permitted to make to any one borrower is generally  limited to 15% of unimpaired
capital  and  surplus  (25%  if  the  security  for  such  loan  has a  "readily
ascertainable"  value or 30% for  certain  residential  development  loans).  At
December  31,  1999,  based on the  above,  the Bank's  regulatory  loans-to-one
borrower limit was approximately  $3.65 million.  On the same date, the Bank had
no borrowers with outstanding  balances in excess of this amount. As of December
31, 1999, the largest  dollar amount  outstanding or committed to be lent to one
borrower or group of related  borrowers  related to Casimer Kopec  totaling $1.2
million secured by five separate multi-family  dwellings located in Oak Lawn and
Chicago Ridge,  Illinois.  The second largest amount outstanding or committed to
be lent to one  borrower or group of related  borrowers  as of December 31, 1999
related to Leo and Ann  Wilczek  totaling  $928,000  secured  by three  separate
multi-family  dwellings  located in Oak Lawn and  Chicago  Ridge,  Illinois.  At
December 31, 1999,  these loans were  performing in accordance with their terms.
As of  December  31,  1999,  there were no other loans with  carrying  values in
excess of $500,000.

         All of the  Bank's  lending  is  subject  to its  written  underwriting
standards and to loan origination procedures. Decisions on loan applications are
made on the basis of detailed  applications and property valuations  (consistent
with the Bank's appraisal policy).  The loan applications are designed primarily
to determine the borrower's  ability to repay and the more significant  items on
the  application  are  verified   through  use  of  credit  reports,   financial
statements,  tax  returns  or  confirmations.  All loans  originated  by Hemlock
Federal  are  approved by the loan  committee  currently  comprised  of Chairman
Partynski, President Stevens, Director Bucz and Chief Lending

                                        3

<PAGE>



Officer Neil Christenson and ratified by the full Board of Directors.

         The Bank  requires  title  insurance or other  evidence of title on its
mortgage  loans,  as well as fire and extended  coverage  casualty  insurance in
amounts  at least  equal to the  principal  amount  of the loan or the  value of
improvements  on the  property,  depending  on the type of loan.  The Bank  also
requires flood insurance to protect the property  securing its interest when the
property is located in a flood plain.








                                        4

<PAGE>



         Loan  Portfolio  Composition.   The  following  table  sets  forth  the
composition  of the Bank's loan  portfolio in dollar  amounts and in percentages
(before deductions (or additions) for loans in process, deferred fees (premiums)
and discounts and allowances for losses) as of the dates indicated.
<TABLE>
<CAPTION>
                                                                     December 31,
                                 -------------------------------------------------------------------------------------
                                        1999              1998           1997            1996            1995
                                 ---------------  ----------------- --------------- ----------------  ----------------
                                  Amount  Percent  Amount   Percent  Amount  Percent Amount  Percent  Amount   Percent
                                 -------- ------  --------  ------- -------  ------ --------  ------  -------   ------
                                                                    (Dollars in Thousands)
<S>                              <C>      <C>    <C>        <C>     <C>       <C>    <C>       <C>    <C>       <C>
Real Estate Loans:
One- to four-family............. $ 91,505  78.03% $ 87,041    84.79% $68,283   88.94% $48,339   89.05% $39,089    85.08%
Multi-family....................   21,031  17.94    12,070    11.76    4,951    6.45    2,783    5.13    3,386     7.37
Commercial......................      181    .15       191      .18      209     .27      573    1.06    1,101     2.40
                                 -------- ------  --------  -------  -------  ------ --------  ------  -------   ------
  Total real estate loans.......  112,717  96.12    99,302    96.73   73,443   95.66   51,695   95.24   43,576    94.85

Consumer loans:
Deposit account.................      114    .10       129      .13      116     .15      169     .31      158     0.34
Automobile......................      265    .23       381      .37      473     .62      301     .55      229     0.50
Home equity.....................    4,164   3.55     2,844     2.77    2,740    3.57    2,114    3.90    1,981     4.31
                                 -------- ------  --------  -------  -------  ------ --------  ------  -------   ------
  Total consumer loans..........    4,543   3.88     3,354     3.27    3,329    4.34    2,584    4.76    2,368     5.15
                                 -------- ------  --------  -------  -------  ------ --------  ------  -------   ------
  Total loans...................  117,260 100.00%  102,656  100.00%   76,772  100.00%  54,279  100.00%  45,944   100.00%
                                          ======            ======            ======           ======            ======

Less:
Loans in process................      ---             (313)             (125)             ---              (28)
Deferred fees and discounts.....      533              409               287                2              (84)
Allowance for losses............     (795)            (775)             (775)            (745)            (600)
                                 --------         --------           -------          -------          -------
  Total loans receivable, net... $116,998         $101,977           $76,159          $53,536          $45,232
                                 ========         ========           =======          =======          =======
</TABLE>


                                                     5

<PAGE>



         The following  table shows the composition of the Bank's loan portfolio
by fixed- and adjustable-rate at the dates indicated.

<TABLE>
<CAPTION>

                                                                     December 31,
                                 -------------------------------------------------------------------------------------
                                        1999              1998           1997            1996            1995
                                 ---------------  ----------------- --------------- ----------------  ----------------
                                  Amount  Percent  Amount   Percent  Amount  Percent Amount  Percent  Amount   Percent
                                 -------- ------  --------  ------- -------  ------ --------  ------  -------   ------
                                                                    (Dollars in Thousands)
<S>                              <C>      <C>    <C>        <C>     <C>       <C>    <C>       <C>    <C>       <C>
Fixed-Rate Loans:
Real estate:
One- to four-family............  $ 82,993  70.78% $ 76,331    74.36% $50,671   66.00% $43,583    80.29% $36,358    79.14%
Multi-family...................    21,031  17.94    11,887    11.58    4,767    6.21    2,783     5.13    3,386     7.37
Commercial.....................       181    .15       191      .18      209     .27      573     1.06    1,101     2.40
Construction or development....       ---    ---       ---      ---      ---     ---      ---      ---      ---      ---
                                 -------- ------  --------  -------  -------  ------  --------  ------  -------   ------
  Total real estate loans......   104,205  88.87    88,409    86.12   55,647   72.48   46,939    86.48   40,845    88.91
Consumer.......................     4,543   3.87     3,354     3.27    3,329    4.34    2,584     4.76    2,368     5.15
                                 -------- ------  --------  -------  -------  ------  --------  ------  -------   ------
  Total fixed-rate loans.......   108,748  92.74    91,763    89.39   58,976   76.82   49,523    91.24   43,213    94.06

Adjustable-Rate Loans
Real estate:
One-to four-family.............     8,512   7.26    10,710    10.43   17,612   22.94    4,756     8.76    2,731     5.94
Multi-family...................       ---    ---       183      .18      184     .24      ---      ---      ---      ---
                                 -------- ------  --------  -------  -------  ------  --------  ------  -------   ------
Total adjustable rate loans....     8,512   7.26    10,893    10.61   17,796   23.18    4,756     8.76    2,731     5.94
                                 -------- ------  --------  -------  -------  ------  --------  ------  -------   ------

  Total loans..................   117,260 100.00%  102,656   100.00%  76,772  100.00%  54,279   100.00%  45,944   100.00%
                                          ======             ======           ======            ======            ======
Less:
----
Loans in process...............       ---             (313)             (125)             ---               (28)
Deferred fees and discounts....       533              409               287                2               (84)
Allowance for losses...........      (795)            (775)             (775)            (745)             (600)
                                 --------         --------           -------          -------           -------
  Total loans receivable, net..  $116,998         $101,977           $76,159          $53,536           $45,232
                                 ========         ========           =======          =======           =======

</TABLE>

                                                                6

<PAGE>



         The following  schedule  illustrates  the  contractual  maturity of the
Bank's loan portfolio at December 31, 1999.  Mortgages  which have adjustable or
renegotiable interest rates are shown as maturing in the period during which the
contract  is due.  The  schedule  does  not  reflect  the  effects  of  possible
prepayments or enforcement of due-on-sale clauses.

<TABLE>
<CAPTION>
                                            Real Estate
                                  ---------------------------------
                                                    Multi-family and
                                                    Commercial Real
                               One- to four-family     Estate           Consumer          Total
                                  ---------------- ---------------- ---------------- ----------------
                                          Weighted        Weighted         Weighted           Weighted
                                           Average          Average        Average            Average
                                   Amount  Rate     Amount   Rate   Amount   Rate    Amount     Rate
                                  ------- -------- ------- -------- ------- -------- ------- --------
                                                                    (Dollars in Thousands)
<S>                               <C>       <C>    <C>        <C>    <C>      <C>    <C>       <C>
    Due During Year(s) Ended
          December 31,
2000(1).........................  $   ---    ---%  $   ---      ---% $1,697   8.38%  $  1,697   8.38%
2002 and 2002...................    1,141   7.85       152     8.96     455   8.14      1,748   8.02
2003 to 2007....................   12,903   7.11     3,967     7.68   1,690   8.12     18,560   7.32
2008 to 2022....................   45,075   7.02    16,799     7.53     701   8.01     62,575   7.17
2023 and following..............   32,386   7.28       294     7.25     ---    ---     32,680   7.28
                                  -------          -------           ------          --------
    Total.......................  $91,505          $21,212           $4,543          $117,260
                                  =======          =======           ======          ========
</TABLE>

-------------
(1) Included demand loans, loans having no stated maturity and overdraft loans.


         The total  amount  of loans due after  December  31,  2000  which  have
predetermined  interest rates is $107.09 million while the total amount of loans
due after such dates which have floating or adjustable  interest  rates is $8.51
million.

         One- to Four-Family Residential Real Estate Lending. The cornerstone of
the Bank's lending  program is the  origination of loans secured by mortgages on
owner-occupied one- to four-family  residences.  Historically,  the Bank focused
its  residential  lending  activities on fixed rate loans with 30 year terms. In
the 1980s,  in order to reduce the average term to repricing of its assets,  the
Bank began to stress also the origination of 15 year fixed rate loans as well as
adjustable  rate  loans.  Substantially  all of the Bank's  one- to  four-family
residential  mortgage  originations  are  secured by  properties  located in its
market area.  All mortgage loans  currently  originated by the Bank are retained
and  serviced by it,  although  the Bank may  consider  selling a portion of its
residential loan originations in the future.

         The Bank currently  offers  fixed-rate  mortgage loans with  maturities
from 10 to 30 years.  The Bank  also  offers a fixed  rate  seven  year  balloon
product  with a 30 year  amortization  schedule  which is due in seven years but
which,  under certain  circumstances,  may be converted into a fully  amortizing
fixed rate loan for an  additional  term of up to 23 years.  Interest  rates and
fees  charged  on these  fixed-rate  loans are  established  on a regular  basis
according to market  conditions.  As of December  31, 1999,  the Bank had $11.61
million of fixed rate loans (most of which were seven year  balloon  loans) with
original  terms of less than 10 years,  $40.98  million of fixed rate loans with
original  terms of 10-15  years and  $30.40  million  of fixed  rate  loans with
original terms of more than 15 years. See  "--Originations,  Purchases and Sales
and Loans and Mortgage-Backed Securities."


                                        7

<PAGE>



         The Bank also  offers  ARMs which carry  interest  rates  which  adjust
annually at a margin (generally 250 basis points) over the yield on the One Year
Average Monthly U.S.  Treasury  Constant  Maturity Index ("one year CMT").  Such
loans may carry  terms to maturity  of up to 30 years.  The ARM loans  currently
offered by the Bank  provide  for up to 200 basis  point  annual  interest  rate
change cap and a lifetime cap  generally 600 basis points over the initial rate.
Initial interest rates offered on the Bank's ARMs may be approximately 100 basis
points below the fully  indexed  rate,  although  borrowers are qualified at the
fully indexed rate. As a result, the risk of default on these loans may increase
as interest rates  increase.  The Bank also originates ARMs which carry interest
rates which are fixed for an initial  term of up to five years and  subsequently
adjust annually to a margin over the one-year CMT. The Bank's ARMs do not permit
negative amortization of principal,  do not contain prepayment penalties and may
be convertible into fixed-rate  loans. At December 31, 1999, one- to four-family
ARMs totaled $8.51 million, or 7.26% of the Bank's total loan portfolio.

         Hemlock  Federal  will  generally  lend up to 90% of the  lesser of the
sales price or appraised  value of the security  property on owner occupied one-
to four-family  loans. The loan-to-value  ratio on non-owner  occupied,  one- to
four-family loans is generally 80% of the lesser of the sales price or appraised
value of the security property. Non-owner occupied one- to four-family loans may
pose a  greater  risk  to the  Bank  than  traditional  owner  occupied  one- to
four-family  loans. In underwriting one- to four-family  residential real estate
loans,  the  Bank  currently  evaluates  both  the  borrower's  ability  to make
principal,  interest and escrow  payments,  the value of the property  that will
secure the loan and debt to income ratios.

         Residential loans do not currently include  prepayment  penalties,  are
non-assumable  and do not  produce  negative  amortization.  Although  the  Bank
currently originates mortgage loans only for its portfolio, the Bank's loans are
generally  underwritten to permit their sale in the secondary market, except for
loans with loan to value ratios below 75% which are  underwritten  for portfolio
with a limited property evaluation rather than full appraisal.

         While  the Bank  seeks  to  originate  most of its one- to  four-family
residential  loans in  amounts  which are less  than or equal to the  applicable
Federal Home Loan Mortgage  Corporation maximum (currently  $240,000),  the Bank
does,  on an exception  basis,  make one- to  four-family  residential  loans in
amounts in excess of such  maximum.  The Bank's  delinquency  experience on such
loans has been similar to its experience on its other residential loans.

         The Bank's residential  mortgage loans customarily  include due-on-sale
clauses  giving  the Bank the  right to  declare  the loan  immediately  due and
payable in the event that,  among other things,  the borrower sells or otherwise
disposes of the property subject to the mortgage and the loan is not repaid.

         Multi-family  and Commercial Real Estate Lending.  In order to increase
the  yield  of  its  loan  portfolio  and  to  complement   residential  lending
opportunities, the Bank from time to time originates permanent multi-family real
estate loans secured by properties in its primary  market area.  The Bank made a
strategic  decision in the early 1990s to eliminate its  commercial  real estate
lending program.  At December 31, 1999, the Bank had multi-family loans totaling
$21.03 million,  or 17.94% of the Bank's total loan  portfolio,  and $181,000 in
commercial real estate loans, representing .15% of the total loan portfolio.

                                        8

<PAGE>



         The Bank's permanent  multi-family  real estate loans generally carry a
maximum term of 15 years and have fixed rates. These loans are generally made in
amounts of up to 80% of the lesser of the appraised  value or the purchase price
of the property.  Appraisals on properties securing  multi-family and commercial
real estate loans are performed by an  independent  appraiser  designated by the
Bank at the time the loan is made.  All appraisals on  multi-family  real estate
loans are  reviewed  by the  Bank's  loan  committee.  In  addition,  the Bank's
underwriting  procedures require  verification of the borrower's credit history,
income and financial statements,  banking  relationships,  references and income
projections  for the  property.  The Bank obtains  personal  guarantees on these
loans.

         At December  31, 1999,  the Bank's  largest  commercial  real estate or
multi-family  loan  outstanding   totaled  $396,863  secured  by  a  twelve-unit
multi-family dwelling located in Bridgeview, Illinois.

         Multi-family  and  commercial  real  estate  loans may present a higher
level of risk than loans secured by one- to four-family residences. This greater
risk is due to several  factors,  including the  concentration of principal in a
limited  number  of  loans  and  borrowers,  the  effects  of  general  economic
conditions  on income  producing  properties  and the  increased  difficulty  of
evaluating and monitoring  these types of loans.  While the Bank has experienced
losses on several  multi-family and commercial real estate loans in the past, as
of December 31, 1999, there were no multi-family loans or commercial real estate
loans delinquent 90 days or more.

         Consumer  Lending.  Management  believes  that  offering  consumer loan
products helps to expand the Bank's customer base and to create stronger ties to
its existing  customer base. In addition,  because consumer loans generally have
shorter terms to maturity and carry higher rates of interest than do residential
mortgage loans, they can be valuable asset/liability  management tools. The Bank
originates a variety of different types of consumer loans, including home equity
loans, automobile and deposit account loans for household and personal purposes.
Due to the tax  advantages  to the borrower of home equity  loans,  the Bank has
focused  its recent  consumer  lending  activities  on home equity  lending.  At
December 31, 1999  consumer  loans totaled $4.54 million or 3.87% of total loans
outstanding.

         Consumer loan terms vary according to the type and value of collateral,
length of contract and  creditworthiness  of the borrower.  The Bank's  consumer
loans are made at fixed interest rates, with terms of up to 10 years.

         The Bank's home equity  loans are written so that the total  commitment
amount,  when  combined  with the balance of the first  mortgage  lien,  may not
exceed 85% of the  appraised  value of the property or $50,000.  These loans are
written with fixed terms of up to 10 years and carry fixed  interest  rates.  At
December 31, 1999, the Bank's home equity loans totaled $4.16 million,  or 3.55%
of the Bank's total loan  portfolio.  In 1998 the Bank also began  offering home
equity lines of credit to qualifying borrowers.  These loans, when combined with
the balance of a first  mortgage  lien, may not exceed 90% if the first mortgage
lien is held by the Bank, or 80% if the first  mortgage lien is held  elsewhere,
or in either case  $100,000.  At December 31, 1999, the Bank's home equity lines
of credit  totaled  $1,637,601  outstanding,  or 1.40% of the Bank's  total loan
portfolio.



                                        9

<PAGE>



         The  underwriting  standards  employed by the Bank for  consumer  loans
include a determination  of the  applicant's  payment history on other debts and
ability to meet existing obligations and payments on the proposed loan. Although
creditworthiness of the applicant is of primary consideration,  the underwriting
process also  includes a  comparison  of the value of the  security,  if any, in
relation to the proposed loan amount.  Consumer  loans may entail greater credit
risk than do residential  mortgage  loans,  particularly in the case of consumer
loans which are unsecured or are secured by rapidly  depreciable assets, such as
automobiles.  In such cases, any repossessed collateral for a defaulted consumer
loan may not provide an adequate  source of  repayment of the  outstanding  loan
balance as a result of the greater  likelihood of damage,  loss or depreciation.
In  addition,   consumer  loan  collections  are  dependent  on  the  borrower's
continuing  financial  stability,  and thus are more  likely to be  affected  by
adverse personal circumstances.  Furthermore, the application of various federal
and state laws,  including  bankruptcy and insolvency  laws, my limit the amount
which can be recovered on such loans.

Originations of Loans

         Real estate loans are  originated  by Hemlock  Federal's  staff through
referrals from existing customers or real estate agents. In the early 1990s, the
Bank determined to increase its one- to four-family  residential  loan marketing
activities and to hire several commissioned loan underwriters.  As a result, the
Bank has experienced significant loan growth in recent years.

         The Bank's ability to originate loans is dependent upon customer demand
for loans in its market and to a limited extent,  various  marketing efforts and
its ability to hire commissioned  loan officers.  Demand is affected by both the
local  economy and the interest  rate  environment.  See "- Market  Area." Under
current  policy,  all loans  originated  by Hemlock  Federal are retained in the
Bank's  portfolio.  See  "Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations - Asset/Liability  Management" in the Annual
Report attached hereto as Exhibit 13.

         In order to  supplement  loan  originations,  the Bank has  acquired  a
substantial  amount  of  mortgage-backed  and other  securities  which are held,
depending   on   the   investment   intent,   in   the   "held-to-maturity"   or
"available-for-sale"  portfolios.  See "Investment  Activities - Mortgage-Backed
and Related Securities." In addition,  depending on market conditions,  the Bank
may also consider the purchase of residential loans from other lenders.

         As a result of the Bank's relatively low loans to deposits ratios since
the early 1980s, the Bank did not sell loans in the secondary market. In view of
the  success of the Bank's  recent  loan  origination  efforts  and the  related
increases  in its  loans to  deposits  ratio,  the Bank  sold a  portion  of its
residential  loan  originations in 1999, and may continue to originate loans for
sale in 2000.



                                       10

<PAGE>



         The following table shows the loan origination and repayment activities
of the Bank for the periods indicated.
                                                          Year Ended
                                                          December 31,
                                               -------------------------------
                                                 1999         1998       1997
                                               --------    --------    -------
                                                        (In Thousands)
Originations by type:
Adjustable rate:
  Real estate - one- to four-family........... $  1,443    $    981    $ 1,852
                  - multi-family..............      ---         ---        185
                                               --------    --------    -------
        Total adjustable-rate.................    1,443         981      2,037
Fixed rate:
  Real estate - one- to four-family...........   19,173      37,090     12,782
                  - multi-family..............    9,856       8,062      2,358
  Non-real estate - consumer..................    3,123       1,838      2,158
                                               --------    --------    -------
        Total fixed-rate......................   32,152      46,990     17,298
                                               --------     -------    -------
          Total loans originated..............   33,595      47,971     19,335

Purchases:
  Real estate - one- to four-family...........      ---         ---     12,607

Sales:
  Real estate - one- to four-family...........    2,110         ---        ---

Principal repayments..........................  (21,101)    (22,087)    (9,449)
                                               --------    ---------   --------
        Total reductions......................   23,211     (22,087)    (9,449)
Increase (decrease) in other items, net.......      417         (66)       130
                                               --------    ---------   -------
        Net increase.......................... $ 15,021    $ 25,818    $22,623
                                               ========    ========    =======

Delinquencies and Non-Performing Assets

         Delinquency  Procedures.  When a  borrower  fails  to  make a  required
payment on a loan,  the Bank attempts to cure the  delinquency by contacting the
borrower.  Generally, Bank personnel work with the delinquent borrower on a case
by case basis to solve the delinquency.  Generally, a late notice is sent on all
delinquent   loans  followed  by  a  phone  call  after  the  thirtieth  day  of
delinquency.  Additional  written  and  verbal  contacts  may be made  with  the
borrower between 30 and 60 days after the due date. If the loan is contractually
delinquent for 90 days, the Bank may institute  appropriate  action to foreclose
on the  property.  After 120 days,  foreclosure  procedures  are  initiated.  If
foreclosed,  the  property  is sold at public sale and may be  purchased  by the
Bank.

         Real estate  acquired by Hemlock  Federal as a result of foreclosure or
by deed in lieu of  foreclosure  is  classified as real estate owned until it is
sold.  When property is acquired by foreclosure or deed in lieu of  foreclosure,
it is recorded at the lower of cost or fair value less estimated  selling costs.
After acquisition,  all costs incurred in maintaining the property are expensed.
Costs relating to the development and improvement of the property,  however, are
capitalized.

                                       11

<PAGE>



         Delinquent Loans. The following table sets forth information concerning
delinquent  mortgage and other loans at December 31, 1999. The amounts presented
represent the total remaining  principal  balances of the related loans,  rather
than the actual payment amounts which are overdue.  Percentages are exclusive of
mortgage-backed securities.
<TABLE>
<CAPTION>

                                       Real Estate
                      -----------------------------------------------
                       One- to four-family    Commercial/Multi-Family      Consumer and Other              Total
                      ---------------------  ------------------------    ------------------------  -----------------------
                      Number Amount Percent  Number  Amount   Percent    Number  Amount   Percent  Number   Amount Percent
                      ------ ------ -------  ------  ------   -------    ------  ------   -------  ------   ------ -------
                                                              (Dollars in Thousands)
<S>                   <C>    <C>    <C>      <C>     <C>      <C>        <C>     <C>      <C>      <C>      <C>     <C>
Loans delinquent for:
December 31, 1999:
 30-59 days..........   ---  $---     ---%      ---  $  ---      ---%       ---  $  ---      ---%    ---     $ ---    ---%
 60-89 days..........     6   430     .47       ---     ---      ---        ---     ---      ---       6       430    .47
 90 days and over....     3   258     .28       ---     ---      ---        ---     ---      ---       3       258    .28
                      -----  ----    ----    ------  ------    -----     ------  ------    -----    ----     -----   ----
     Total...........     9  $688     .75%      ---  $  ---      ---%       ---  $  ---      ---%      9     $ 688    .75%
                      =====  ====    ====    ======  ======    =====     ======  ======    =====    ====     =====   ====

</TABLE>


                                       12

<PAGE>



         Classification of Assets. Federal regulations require that each savings
institution  classify  its own  assets  on a  regular  basis.  In  addition,  in
connection  with  examinations of savings  institutions,  OTS and FDIC examiners
have authority to identify  problem assets and, if appropriate,  require them to
be classified.  There are three classifications for problem assets: Substandard,
Doubtful and Loss.  Substandard  assets have one or more defined  weaknesses and
are  characterized  by the distinct  possibility that the Bank will sustain some
loss if the deficiencies are not corrected.  Doubtful assets have the weaknesses
of Substandard assets, with the additional  characteristics  that the weaknesses
make collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable,  and there is a high possibility of loss. An
asset classified Loss is considered  uncollectible and of such little value that
continuance  as an  asset  on  the  balance  sheet  of  the  institution  is not
warranted.  Assets classified as Substandard or Doubtful require the institution
to establish prudent general  allowances for loan losses. If an asset or portion
thereof is classified as a loss, the institution charges off such amount against
the loan loss  allowance.  If an  institution  does not agree with an examiner's
classification  of an asset,  it may appeal this  determination  to the District
Director of the OTS.

         On the basis of  management's  review of its assets,  at  December  31,
1999,  the Bank had classified a total of $342,000 of its loans and other assets
as follows:


                                                     December 31, 1999
                                                    -------------------
                                                      (In Thousands)

Special Mention.............................                  $249
Substandard.................................                    93
Doubtful....................................                   ---
Loss........................................                   ---
                                                            ------
     Total..................................                  $342
                                                            ======
General loss allowance......................                  $795
                                                            ======
Specific loss allowance.....................                   ---
                                                            ======
Charge-offs.................................                   ---
                                                            ======



                                       13

<PAGE>



         Non-Performing  Assets.  The table  below  sets forth the  amounts  and
categories of  non-performing  assets in the Bank's loan  portfolio.  Foreclosed
assets include assets acquired in settlement of loans.


                                                          December 31,
                                                 ---------------------------
                                                   1999      1998      1997
                                                 -------   -------   -------
                                                     (Dollars in Thousands)
Non-accruing loans:
  One- to four-family.......................        $258      $124      $256
  Multi-family..............................         ---       ---       ---
  Commercial real estate....................         ---       ---       ---
  Construction or development...............         ---       ---       ---
  Consumer..................................         ---       ---       ---
                                                 -------   -------   -------
       Total................................         258       124       256

Accruing loans delinquent more than 90
days:.......................................
  One- to four-family.......................         ---       ---       ---
  Multi-family..............................         ---       ---       ---
  Commercial real estate....................         ---       ---       ---
  Construction or development...............         ---       ---       ---
  Consumer..................................         ---       ---       ---
                                                  ------    ------    ------
       Total................................         ---       ---       ---

Foreclosed assets:
  One- to four-family.......................         ---       ---       ---
  Multi-family..............................         ---       ---       ---
  Commercial real estate....................         ---       ---       ---
  Construction or development...............         ---       ---       ---
  Consumer..................................         ---       ---       ---
                                                  ------    ------    ------
       Total................................         ---       ---       ---

Renegotiated loans..........................

Total non-performing assets.................       $ 258     $ 124     $ 256
                                                   =====     =====     =====

Total as a percentage of total assets.......         .11%      .06%      .15%
                                                   =====     =====     =====


         For the years ended December 31, 1999 and 1998,  gross interest  income
which  would have been  recorded  had the  non-accruing  loans  been  current in
accordance   with  their   original  terms  amounted  to  $22,771  and  $10,493,
respectively.  The amounts that were  included in interest  income on such loans
were  $9,808  and  $6,902  for the  years  ended  December  31,  1999 and  1998,
respectively.

         Management considers the Bank's  non-performing and "of concern" assets
in establishing its allowance for loan losses.



                                       14

<PAGE>



         The following table sets forth an analysis of the Bank's  allowance for
loan losses.
                                                      Year Ended December 31,
                                                      ----------------------
                                                       1999    1998    1997
                                                      -----   -----   ------
                                                        (Dollars in Thousands)

Balance at beginning of period.................       $ 775   $ 775   $ 745

Charge-offs:
  One- to four-family..........................         ---      21     ---
  Multi-family.................................         ---     ---     ---
  Commercial real estate.......................         ---     ---     ---
  Consumer.....................................         ---     ---     ---
                                                      -----   -----   -----
                                                        ---      21     ---
                                                      -----   -----   -----

Recoveries:
  One- to four-family..........................         ---     ---     ---
  Multi-family.................................         ---     ---     ---
  Commercial real estate.......................         ---     ---     ---
  Consumer.....................................         ---     ---     ---
                                                      -----   -----   -----
                                                        ---     ---     ---
                                                      -----   -----   -----

Net charge-offs................................         ---     (21)    ---
Additions charged to operations................          20      21      30
                                                      -----   -----   -----
Balance at end of period.......................       $ 795   $ 775   $ 775
                                                      =====   =====   =====

Ratio of net charge-offs (recoveries) during
  the period to average loans outstanding
  during the period............................         ---%   0.02%    ---%
                                                      =====   =====   =====

Ratio of net charge-offs (recoveries) during
  the period to average non-performing assets..         ---%  12.96%    ---%
                                                      =====   =====   =====


                                       15

<PAGE>



         The  distribution  of the Bank's  allowance  for losses on loans at the
dates indicated is summarized as follows:

<TABLE>
<CAPTION>
                                                                 December 31,
                          --------------------------------------------------------------------------------------
                                        1999                        1998                        1997
                          ----------------------------- ---------------------------- ---------------------------
                                                Percent                      Percent                     Percent
                                               of loans                     of loans                    of loans
                           Amount       Loan    in Each  Amount     Loan     in Each  Amount    Loan     in Each
                           of loan     Amounts Category  of loan   Amounts  Category  of loan  Amounts  Category
                            loss         by    of Total   loss       by     of Total   loss      by     of Total
                          Allowance   Category   Loans  Allowance Category    Loans  Allowance Category   Loans
                          --------- ---------- -------- -------- ---------- -------- -------- --------- --------
                                                               (In Thousands)

<S>                         <C>     <C>        <C>       <C>     <C>         <C>      <C>     <C>        <C>
One- to four-family.......  $183    $ 91,505    78.03%    $174    $ 87,041    84.79%   $341    $68,283    88.94%
Multi-family..............   210      21,031    17.94      119      12,070    11.76     149      4,951     6.45
Commercial real estate....     6         181      .15        6         191      .18      11        209      .27
Consumer..................    14       4,543     3.88       10       3,354     3.27      18      3,329     4.34
Unallocated...............   382         ---      ---      466         ---      ---     256        ---      ---
                            ----    --------   ------     ----    --------   ------    ----    -------   ------
     Total................  $795    $117,260   100.00%    $775    $102,656   100.00%   $775    $76,772   100.00%
                            ====    ========   ======     ====    ========   ======    ====    =======   ======
</TABLE>

         The  allowance for loan losses is  established  through a provision for
loan losses  charged to earnings  based on  management's  evaluation of the risk
inherent in its entire loan portfolio. Such evaluation,  which includes a review
of all  loans  of  which  full  collectibility  may not be  reasonably  assured,
considers the market value of the underlying collateral,  growth and composition
of the loan portfolio,  delinquency  trends,  adverse situations that may affect
the  borrower's  ability  to repay,  prevailing  economic  conditions  and other
factors that warrant recognition in providing for an adequate allowance for loan
losses.  In determining the general  reserves under these  policies,  historical
charge-offs and  recoveries,  changes in the mix and levels of the various types
of loans,  collateral  values,  the current loan portfolio and current  economic
conditions are considered.

         While management  believes that it uses the best information  available
to  determine  the  allowance  for loan losses,  unforeseen  economic and market
conditions could result in adjustments to the allowance for loan losses, and net
earnings could be significantly  affected, if circumstances differ substantially
from the assumptions used in making the final determination.

Investment Activities

         General.  Hemlock  Federal must maintain  minimum levels of investments
and other assets that qualify as liquid assets under OTS regulations.  Liquidity
may  increase  or  decrease   depending  upon  the  availability  of  funds  and
comparative   yields  on  investments  in  relation  to  the  return  on  loans.
Historically,   Hemlock   Federal  has   maintained   liquid  assets  at  levels
significantly above the minimum  requirements imposed by the OTS regulations and
above levels believed  adequate to meet the  requirements of normal  operations,
including  potential deposit outflows.  At December 31, 1999,  Hemlock Federal's
liquidity ratio for regulatory purposes was 13.64%.

         Generally,  the investment policy of Hemlock Federal is to invest funds
among   categories  of  investments   and  maturities   based  upon  the  Bank's
asset/liability  management  policies,  investment  quality,  loan  and  deposit
volume, liquidity needs and performance objectives.  As required by Statement of
Financial  Accounting  Standard No. 115,  securities are  classified  into three
categories:  trading,  held-to-maturity and available-for-sale.  Securities that
are bought and held principally for the purpose of selling them in the near term
are classified as trading securities and are reported at fair

                                       16

<PAGE>



value with unrealized gains and losses included in trading account activities in
the statement of operations.  Securities  that Hemlock  Federal has the positive
intent and ability to hold to maturity are  classified as  held-to-maturity  and
reported at amortized  cost.  All other  securities not classified as trading or
held-to-maturity  are  classified as  available-for-sale.  At December 31, 1999,
Hemlock  Federal had no securities  which were  classified as trading and $45.32
million of  mortgage-backed  and related  securities and $15.81 million of other
securities  classified as  held-to-maturity.  Available-for-sale  securities are
reported  at fair  value  with  unrealized  gains  and  losses  included,  on an
after-tax basis, in a separate component of retained  earnings.  At December 31,
1999, $27.75 million of mortgage-backed  and related securities and $.98 million
of other securities were classified as available-for-sale.

         Mortgage-Backed  and Related  Securities.  In order to  supplement  its
lending  activities and achieve its asset liability  management  goals, the Bank
invests in mortgage-backed and related securities.  As of December 31, 1999, all
of the  mortgage-backed  and  related  securities  owned by the Bank are issued,
insured or guaranteed  either  directly or indirectly by a federal agency or are
rated "AAA" by a nationally recognized credit rating agency.  However, it should
be noted that, while a (direct or indirect)  federal  guarantee or a high credit
rating may indicate a high degree of  protection  against  default,  they do not
indicate that the  securities  will be protected from declines in value based on
changes in interest rates or prepayment speeds.

         Consistent with its asset/liability  management  strategy,  at December
31, 1999, $33.3 million, or 45% of Hemlock Federal's mortgage-backed and related
securities had adjustable or floating interest rates. In addition,  as discussed
below,  as of  the  same  date,  the  Bank  had  $13.1  million  of  fixed  rate
collateralized  mortgage  obligations ("CMOs") with anticipated average lives of
five years or less.

         The Bank's CMOs are securities  derived by reallocating  the cash flows
from  mortgage-backed  securities or pools of mortgage  loans in order to create
multiple classes, or tranches, of securities with coupon rates and average lives
that differ from the underlying  collateral as a whole. The terms to maturity of
any particular  tranche is dependent upon the prepayment speed of the underlying
collateral  as  well  as  the  structure  of  the  particular  CMO.  Although  a
significant  proportion of the Bank's CMOs are interests in tranches  which have
been structured  (through the use of cash flow priority and "support"  tranches)
to give somewhat more  predictable cash flows, the cash flow and hence the value
of CMOs is subject to change.

         The Bank  invests  in CMOs as an  alternative  to  mortgage  loans  and
conventional   mortgage-backed   securities  as  part  of  its   asset/liability
management   strategy.   Management  believes  that  CMOs  represent  attractive
investment alternatives relative to other investments due to the wide variety of
maturity  and  repayment  options   available   through  such  investments.   In
particular, the Bank has from time to time concluded that short and intermediate
duration  CMOs  (five  year or less  average  life)  often  represent  a  better
combination  of  rate  and  duration  than   adjustable   rate   mortgage-backed
securities.



                                       17

<PAGE>



         The  following   table  sets  forth  the   composition  of  the  Bank's
mortgage-backed securities at the dates indicated.


                                                   December 31,
                            ----------------------------------------------------
                                   1999             1998               1997
                            ----------------- ----------------- ----------------
                             Carrying  % of   Carrying  % of      Carrying  % of
                               Value   Total    Value   Total      Value   Total
                                              (Dollars in Thousands)
Mortgage-backed securities
 held-to- maturity:
  GNMA...................... $14,791   20.25%  $ 19,186  24.23% $  4,328   7.02%
  FNMA......................  14,396   19.70     13,607  17.18    11,977  19.42
  FHLMC.....................   9,260   12.67      8,007  10.11     7,773  12.61
  CMOs......................   6,868    9.40     11,716  14.79     7,605  12.33
                             -------  ------  --------- ------  -------- ------
                              45,315   62.02     52,516  66.31    31,683  51.38
Mortgage-backed securities
 available-for- sale:
  FNMA......................   2,670    3.65      4,118   5.20     7,777  12.61
  FHLMC.....................   2,283    3.13      3,434   4.34     5,347   8.67
  CMOs......................  22,795   31.20     19,130  24.15    16,859  27.34
                             -------  ------   -------- ------  -------- ------
                              27,748   37.98     26,682  33.69    29,983  48.62
                             -------  ------   -------- ------  -------- ------
Total mortgage-backed
 securities................. $73,063  100.00%  $ 79,198 100.00% $ 61,666 100.00%
                             =======  ======   ======== ======  ======== ======



                                       18

<PAGE>



         The following table sets forth the contractual maturities of the Bank's
mortgage-backed securities at December 31, 1999.
<TABLE>
<CAPTION>

                                                                    Due in                            December 31, 1999
                                          ---------------------------------------------------------- -------------------
                                          6 Months  6 Months   1 to  3 to 5 5 to 10 10 to 20 Over 20  Amortized Carrying
                                          or Less  to 1 Year 3 Years Years   Years   Years    Years     Cost      Value
                                          -------- --------- ------- ------ ------- -------- ------- ---------- --------
                                                                                (In Thousands)
<S>                                        <C>      <C>       <C>     <C>     <C>     <C>      <C>        <C>     <C>
Federal Home Loan Mortgage
Corporation..............................  $   ---  $  ---    $  908  $  844  $1,164  $ 6,524  $  2,065  $11,505  $11,543
Federal National Mortgage Association....      ---     458        69     229     590    9,608     6,064   17,018   17,066
Government National Mortgage
Association..............................        1     ---       ---      57     143      822    13,768   14,791   14,791
CMOs ....................................      ---     ---        47     247   5,954    1,780    21,859   29,887   29,663
                                           -------  ------    ------  ------  ------  -------  --------  -------  -------
     Total...............................  $     1  $  458    $1,024  $1,377  $7,851  $18,734  $ 43,756   $73,201 $73,063
                                           =======  ======    ======  ======  ======  =======  ========  =======  =======
Weighted average yield...................   11.50%   6.50%     6.83%   7.32%   7.01%    7.20%     6.82%    6.95%    6.96%
</TABLE>



                                       19

<PAGE>



         As of  December  31,  1999,  the Bank did not have any  mortgage-backed
securities in excess of 10% of retained earnings except for FNMA, FHLMC and GNMA
issues,  amounting  to  $17.07  million,  $11.54  million  and  $14.79  million,
respectively.

         The market values of a portion of the Bank's mortgage-backed securities
held-to-maturity  have been from time to time lower than their carrying  values.
However, for financial reporting purposes, such declines in value are considered
to be temporary in nature since they have been due to changes in interest  rates
rather than credit concerns.

         The following table shows mortgage-backed securities purchase, sale and
repayment activities of the Bank for the periods indicated.

                                                           Year Ended
                                                           December 31,
                                                 ------------------------------
                                                  1999        1998        1997
                                                 --------   ---------    ------
                                                         (In Thousands)
Purchases:
  Adjustable-rate.............................   $  4,408   $     ---   $ 3,561
  Fixed-rate..................................      3,505      25,680       ---
  CMOs........................................      8,716      25,698    14,179
                                                 --------   ---------    ------
         Total purchases......................     16,629      51,378    17,740

Sales:
  Adjustable-rate.............................        ---         ---       ---
  Fixed-rate..................................        ---         ---       ---
  CMOs........................................        ---       1,911       ---
                                                 --------   ---------   -------
          Total sales.........................        ---       1,911       ---

  Principal repayments........................    (21,921)    (32,017)  (19,865)
  Discount/premium net change.................       (406)        333       (91)
  Fair value net change.......................       (437)       (251)      304
                                                 --------   ---------   -------
         Net increase (decrease)..............   $ (6,135)  $  17,532   $(1,912)
                                                 ========   =========   =======

         The Bank  continues to maintain a substantial  portion of its assets in
mortgage-backed  securities,  although in recent  years the  percentage  of such
securities to total assets has  decreased.  Since  pass-through  mortgage-backed
securities  generally carry a yield  approximately  50 to 100 basis points below
that of the  corresponding  type of residential loan (due to the implied federal
agency  guarantee  fee and the  retention  of a  servicing  spread  by the  loan
servicer),  and the Bank's CMOs and REMICs  also carry lower  yields (due to the
implied  federal  agency  guarantee  and because  such  securities  tend to have
shorter actual  durations than 30 year loans),  in the event that the proportion
of the Bank's  assets  consisting  of  mortgage-backed  and  related  securities
increases,  the Bank's asset yields could be somewhat  adversely  affected.  The
Bank will  evaluate  mortgage-backed  and related  securities  purchases  in the
future  based  on  its   asset/liability   objectives,   market  conditions  and
alternative investment opportunities.


                                       20

<PAGE>



         Securities. Federally chartered savings institutions have the authority
to invest in various types of liquid assets,  including  United States  Treasury
obligations,  securities of various federal  agencies,  certain  certificates of
deposit of insured banks and savings institutions, certain bankers' acceptances,
repurchase  agreements  and  federal  funds.  Subject to  various  restrictions,
federally  chartered  savings  institutions  may also  invest  their  assets  in
commercial  paper,  investment  grade corporate debt securities and mutual funds
whose  assets  conform to the  investments  that a federally  chartered  savings
institution is otherwise authorized to make directly.

         In order to  complement  its  lending  and  mortgage-backed  securities
investment  activities  and to  increase  its  holding of short and medium  term
assets,   the  Bank  invests  in  liquidity   investments  and  in  high-quality
investments, such as U.S. Treasury and agency obligations. At December 31, 1999,
the Bank's securities  portfolio  totaled $16.79 million.  At December 31, 1999,
the Bank did not own any securities of a single issuer which exceeded 10% of the
Bank's retained earnings, other than federal agency obligations.

         The following table sets forth the composition of the Bank's securities
and other earning assets at the dates indicated.
<TABLE>
<CAPTION>

                                                                  December 31,
                                            -------------------------------------------------------
                                                 1999                 1998                 1997
                                            ---------------    -----------------    ---------------
                                           Carrying  % of      Carrying   % of     Carrying   % of
                                             Value   Total      Value     Total     Value    Total
                                            -------  ------    --------   ------    -------  ------
                                                             (Dollars in Thousands)
<S>                                         <C>      <C>      <C>         <C>      <C>       <C>
Securities held-to-maturity:
  Federal agency obligations.............   $15,811   94.05%   $  6,101    77.12%   $14,735   80.29%

Securities available-for sale:
  Federal agency obligations.............       980    5.95       1,810    22.88      3,617   19.71
                                            -------  ------    --------   ------    -------  ------

       Total securities..................   $16,791  100.00%   $  7,911   100.00%   $18,352  100.00%
                                            =======  ======    ========   ======    =======  ======

Average remaining life of securities:            8 years             3 years             4 years

Other earning assets:
  Interest-earning deposits with banks...   $ 4,779   45.19%   $  3,677    51.63%   $12,169   85.34%
  FHLB stock.............................     2,325    21.99      1,850    25.98        987    6.92
  FHLMC stock............................     3,470    32.82      1,595    22.39      1,103    7.74
                                            -------  -------   --------   ------    -------  ------
        Total............................   $10,574  100.00%   $  7,122   100.00%   $14,259  100.00%
                                            =======  ======    ========   ======    =======  ======
</TABLE>

         The composition and maturities of the securities  portfolio,  excluding
FHLB stock, are indicated in the following table.
<TABLE>
<CAPTION>

                                                               December 31, 1999
                             -----------------------------------------------------------------------------------------
                                Less Than      1 to 5         5 to 10         Over
                                 1 Year         Years          Years        10 years              Total Securities
                             -------------- -------------- -------------- -------------- -----------------------------
                             Amortized Cost Amortized Cost Amortized Cost Amortized Cost Amortized Cost Carrying Value
                             -------------- -------------- -------------- -------------- -------------- --------------
                                                                  (Dollars in Thousands)

<S>                           <C>               <C>           <C>             <C>          <C>             <C>
Federal agency obligations..  $   ---           $5,503        $8,312          $2,996       $16,811         $16,791
                              -------           ------        ------          ------       -------         -------
Weighted average yield......      ---%            6.70%         6.84%           6.30%         6.70%           6.98%
                              =======           ======        ======          ======       =======         =======
</TABLE>



                                       21

<PAGE>



Sources of Funds

         General.  The Bank's  primary  sources of funds are deposits,  payments
(including  prepayments)  of  loan  principal,  interest  earned  on  loans  and
securities,  repayments  of  securities,  borrowings  and  funds  provided  from
operations.

         Deposits.  Hemlock Federal offers deposit  accounts having a wide range
of interest rates and terms. The Bank's deposits consist of passbook, NOW, money
market  and  various  certificate   accounts.   The  Bank  relies  primarily  on
competitive  pricing and customer  service to attract and retain these deposits.
The Bank's  customers may access their  accounts  through any of the Bank's four
offices and three automated teller machines.  In addition,  the Bank's customers
may access their accounts  through  CIRRUS,  a nationwide ATM network.  The Bank
only solicits  deposits in its market area and does not currently use brokers to
obtain deposits.

         The variety of deposit  accounts  offered by the Bank has allowed it to
be competitive in obtaining funds and to respond with  flexibility to changes in
consumer  demand.  As a result,  as  customers  have become more  interest  rate
conscious,  the Bank has become more  susceptible to short-term  fluctuations in
deposit flows.

         The Bank  manages  the  pricing of its  deposits  in  keeping  with its
asset/liability  management,  profitability  and  growth  objectives.  The  Bank
experienced deposit growth of 5.19% in 1999, due primarily to the opening of the
full service  branch  office in Lemont,  Illinois in December  1998.  Management
believes  that future  deposit  growth will be achieved  primarily  through this
office and through the acquisition of Midwest.

         Management  believes  that the "core"  portion  of the  Bank's  regular
savings,  NOW and  money  market  accounts  can  have a lower  cost  and be more
resistant to interest rate changes than  certificate  accounts.  These  accounts
increased  $7.43  million since  December 31, 1993.  The Bank intends to utilize
customer  service and marketing  initiatives in an effort to maintain the volume
of such deposits. However, there can be no assurance as to whether the Bank will
be able to maintain or increase its core deposits in the future.

         The following table sets forth the savings flows at the Bank during the
periods indicated.
                                              Year Ended
                                              December 31,
                                  -------------------------------------
                                    1999         1998           1997
                                  --------    ---------      ----------
                                          (Dollars In Thousands)

Opening balance................   $143,149    $ 130,958      $  131,243
Deposits.......................    299,461      241,772         271,622
Withdrawals....................    297,660    (235,112)       (277,503)
Interest credited..............      5,626        5,531           5,596
                                  --------    ---------      ----------
Ending balance.................   $150,576    $ 143,149      $  130,958
                                  --------     ========      ==========
Net increase (decrease)........   $  7,427    $  12,191      $     (285)
                                  ========    =========      ==========
Percent increase (decrease)....       5.19%        9.31%          (0.22)%
                                  ========    =========      ==========




                                       22

<PAGE>



         The following table sets forth the dollar amount of savings deposits in
the  various  types of  deposit  programs  offered  by the Bank as of the  dates
indicated.

<TABLE>
<CAPTION>
                                                                    December 31,
                                         ---------------------------------------------------------------
                                                  1999                1998                   1997
                                         -------------------   ---------------------  ------------------
                                                     Percent                Percent             Percent
                                            Amount  of Total    Amount     of Total    Amount   of Total
                                          --------  --------   --------    ---------  --------  --------
                                                                   (Dollars in Thousands)
<S>                                      <C>         <C>      <C>           <C>      <C>         <C>
Transactions and Savings Deposits
Passbook Accounts 2.94%................   $ 51,788    34.39%   $ 47,799      33.39%   $ 44,891    34.28%
NOW Accounts 2.02%.....................     18,388    12.21      16,901      11.81      14,950    11.41
Money Market Accounts 3.20%............      7,203     4.79       6,596       4.61       5,091     3.89
                                          --------   ------    --------      -----    --------   ------

Total Non-Certificates.................     77,379    51.39      71,296      49.81      64,932    49.58

Certificates:
0.00 - 3.99%...........................        ---      ---          48       0.03         ---      ---
4.00 - 5.99%...........................     70,296    46.68      66,193      46.24      57,588    43.98
6.00 - 7.99%...........................      2,901     1.93       5,612       3.92       8,438     6.44
                                          --------   ------    --------     ------    --------   ------

Total Certificates.....................     73,197    48.61      71,853      50.19      66,026    50.42
                                          --------   ------    --------      -----    --------   ------

Total Deposits.........................   $150,576   100.00%   $143,149     100.00%   $130,958   100.00%
                                          ========   ======    ========     ======    ========   ======

</TABLE>

         The following table indicates the amount of the Bank's  certificates of
deposit and other deposits by time  remaining  until maturity as of December 31,
1999.

                                                    Maturity
                                  ------------------------------------------
                                            Over    Over
                                 3 Months  3 to 6  6 to 12   Over
                                  or Less  Months  Months  12 months  Total
                                  ------- -------  -------  -------  -------
                                                (In Thousands)
Certificates of deposit less
 than $100,000..................  $15,181 $18,441  $18,964  $14,367  $66,953

Certificates of deposit of
 $100,000 or more...............      941   2,192    1,939    1,172    6,244
                                  ------- -------  -------  -------  -------

Total certificates of deposit...  $16,122 $20,633  $20,903  $15,539  $73,197
                                  ======= =======  =======  =======  =======

         Borrowings.  Hemlock Federal's other available sources of funds include
advances from the FHLB of Chicago and other borrowings.  As a member of the FHLB
of Chicago, the Bank is required to own capital stock in the FHLB of Chicago and
is authorized  to apply for advances from the FHLB of Chicago.  Each FHLB credit
program has its own interest rate, which may be fixed or variable,  and range of
maturities.  The FHLB of Chicago may  prescribe  the  acceptable  uses for these
advances,  as well as  limitations  on the size of the  advances  and  repayment
provisions.



                                       23

<PAGE>



         The  following  table  sets forth the  maximum  month-end  balance  and
average  balance of FHLB  advances  for the periods  indicated.  The Bank had no
other outstanding borrowings during the periods shown


                                          Year Ended
                                           December 31,
                          -----------------------------------------
                               1999            1998          1997
                          --------------- --------------  ---------
                                      (Dollars In Thousands)
Maximum Balance:
  FHLB Advances..........   $49,500        $31,000         $11,000

Average Balance:
  FHLB Advances..........   $34,269        $24,923        $  3,462

         The  following  table sets forth certain  information  as to the Bank's
FHLB advances at the dates indicated.
                                                        December 31,
                                             ---------------------------------
                                                 1999        1998       1997
                                             ----------- ----------- ---------
                                                     (Dollars in Thousands)

FHLB advances................................  $ 49,500    $ 31,000   $ 11,000

Weighted average interest rate during the
 period of FHLB advances.....................     4.93%       5.42%      6.32%

Weighted average interest rate at end of
 period of FHLB advances.....................     5.22%       4.91%      5.86%


Subsidiary and Other Activities

         As a federally  chartered savings bank, Hemlock Federal is permitted by
OTS  regulations  to invest up to 2% of its assets in the stock of, or loans to,
service corporation subsidiaries,  and may invest an additional 1% of its assets
in service  corporations  where such additional funds are used for inner-city or
community   development   purposes.   In  addition  to  investments  in  service
corporations,  federal  institutions are permitted to invest an unlimited amount
in operating  subsidiaries  engaged solely in activities which a federal savings
association  may engage in directly.  At December 31, 1999,  Hemlock Federal did
not have any subsidiaries.


                                       24

<PAGE>

                                   REGULATION

General

         Hemlock Federal is a federally  chartered savings bank, the deposits of
which are  federally  insured  and  backed by the full  faith and  credit of the
United  States  Government.  Accordingly,  Hemlock  Federal  is subject to broad
federal  regulation  and  oversight  extending  to all its  operations.  Hemlock
Federal  is a member of the FHLB of Chicago  and is  subject to certain  limited
regulation  by the Board of Governors of the Federal  Reserve  System  ("Federal
Reserve Board"). As the savings and loan holding company of Hemlock Federal, the
Holding Company also is subject to federal regulation and oversight. The purpose
of the  regulation  of the Holding  Company and other  holding  companies  is to
protect  subsidiary  savings  associations.  Hemlock  Federal is a member of the
Savings  Association  Insurance  Fund  ("SAIF"),  which  together  with the Bank
Insurance Fund (the "BIF") are the two deposit  insurance funds  administered by
the FDIC,  and the  deposits of Hemlock  Federal  are insured by the FDIC.  As a
result, the FDIC has certain  regulatory and examination  authority over Hemlock
Federal.

         Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.

Federal Regulation of Savings Associations

         The  OTS  has  extensive  authority  over  the  operations  of  savings
associations.  As part of this  authority,  Hemlock  Federal is required to file
periodic reports with the OTS and is subject to periodic examinations by the OTS
and the FDIC. The last regular OTS and FDIC examinations of Hemlock Federal were
as of September 1997 and February 1995,  respectively.  Under agency  scheduling
guidelines,  it is likely that another examination will be initiated in the near
future.  When these  examinations  are  conducted  by the OTS and the FDIC,  the
examiners may require  Hemlock Federal to provide for higher general or specific
loan loss  reserves.  All  savings  associations  are  subject to a  semi-annual
assessment,  based upon the  savings  association's  total  assets,  to fund the
operations  of the OTS.  Hemlock  Federal's OTS  assessment  for the fiscal year
ended December 31, 1999 was $50,000.

         The OTS also  has  extensive  enforcement  authority  over all  savings
institutions  and their holding  companies,  including  Hemlock  Federal and the
Holding Company.  This enforcement  authority includes,  among other things, the
ability to assess civil money penalties,  to issue  cease-and-desist  or removal
orders and to initiate injunctive actions. In general, these enforcement actions
may be initiated for  violations of laws and  regulations  and unsafe or unsound
practices.  Other  actions or  inactions  may provide the basis for  enforcement
action,  including  misleading or untimely  reports  filed with the OTS.  Except
under certain  circumstances,  public disclosure of final enforcement actions by
the OTS is required.

         In addition, the investment, lending and branching authority of Hemlock
Federal is prescribed by federal laws and it is prohibited  from engaging in any
activities not permitted by such laws. For instance,  no savings institution may
invest in  non-investment  grade  corporate debt  securities.  In addition,  the
permissible  level of  investment  by federal  associations  in loans secured by
non-residential real property may not exceed 400% of total capital,  except with
approval of the OTS. Federal savings  associations are also generally authorized
to  branch  nationwide.   Hemlock  Federal  is  in  compliance  with  the  noted
restrictions.

         Hemlock    Federal's    general    permissible    lending   limit   for
loans-to-one-borrower  is equal to the greater of $500,000 or 15% of  unimpaired
capital  and  surplus  (except  for  loans  fully  secured  by  certain  readily
marketable  collateral,  in  which  case  this  limit  is  increased  to  25% of
unimpaired capital and surplus). At December 31, 1999, Hemlock Federal's lending
limit under this restriction was $3.65 million. Hemlock Federal is in compliance
with the loans-to-one-borrower limitation.

         The OTS, as well as the other  federal  banking  agencies,  has adopted
guidelines  establishing  safety and soundness standards on such matters as loan
underwriting and  documentation,  asset quality,  earnings  standards,  internal
controls and audit  systems,  interest rate risk exposure and  compensation  and
other  employee  benefits.  Any  institution  which  fails to comply  with these
standards must submit a compliance plan. A failure to submit a plan or to comply
with an  approved  plan will  subject  the  institution  to further  enforcement
action.

Insurance of Accounts and Regulation by the FDIC

         Hemlock  Federal is a member of the SAIF,  which is administered by the
FDIC.  Deposits  are  insured  up to  applicable  limits  by the  FDIC  and such
insurance  is  backed  by  the  full  faith  and  credit  of the  United  States
Government.  As insurer,  the FDIC  imposes  deposit  insurance  premiums and is
authorized to conduct  examinations of and to require  reporting by FDIC-insured
institutions. It also may prohibit any FDIC-insured institution from engaging in
any activity the FDIC  determines  by regulation or order to pose a serious risk
to the SAIF or the BIF. The FDIC also has the authority to initiate  enforcement
actions  against  savings  associations,  after giving the OTS an opportunity to
take such action,  and may terminate the deposit insurance if it determines that
the institution has engaged in unsafe or unsound practices or is in an unsafe or
unsound condition.

         The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured  depository  institutions  are placed into one of
nine  categories  and  assessed  insurance  premiums  based upon their  level of
capital and supervisory evaluation. Under the system, institutions classified as
well  capitalized  (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to  risk-weighted  assets  ("Tier 1  risk-based  capital") of at
least 6% and a risk-based  capital ratio of at least 10%) and considered healthy
pay the  lowest  premium  while  institutions  that  are  less  than  adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based  capital  ratio  of less  than  8%)  and  considered  of  substantial
supervisory concern pay the highest premium.  Risk classification of all insured
institutions is made by the FDIC for each semi-annual assessment period.

         The FDIC is authorized to increase  assessment  rates,  on a semiannual
basis, if it determines that the reserve ratio of the SAIF will be less than the
designated  reserve ratio of 1.25% of  SAIF-insured  deposits.  In setting these
increased  assessments,  the FDIC must seek to restore the reserve ratio to that
designated  reserve  level,  or such higher  reserve ratio as established by the
FDIC.  The FDIC may also impose  special  assessments  on SAIF  members to repay
amounts  borrowed from the United States Treasury or for any other reason deemed
necessary by the FDIC.

                                       25

<PAGE>



         Since January 1, 1997, the premium schedule for Bank Insurance Fund and
Savings Association  Insurance Fund insured institutions has ranged from 0 to 27
basis points.  However,  Savings Association Insurance Fund insured institutions
are  required to pay a Financing  Corporation  assessment,  in order to fund the
interest on bonds issued to resolve  thrift  failures in the 1980s.  For Savings
Association   Insurance   Fund  insured   institutions,   this   assessment   is
approximately six basis points for each $100 in domestic deposits,  and for Bank
Insurance Fund insured  institutions  this assessment is approximately one basis
point for each $100 in domestic  deposits.  It is expected  that the  assessment
will  soon  be  changed  to two  basis  points  for  all  insured  institutions,
regardless of fund. The assessment,  which may be revised further based upon the
level of Bank  Insurance Fund and Savings  Association  Insurance Fund deposits,
will continue until the bonds mature in the year 2017.

Regulatory Capital Requirements

         Federally insured savings  associations,  such as Hemlock Federal,  are
required  to  maintain  a  minimum  level  of  regulatory  capital.  The OTS has
established  capital  standards,  including a tangible  capital  requirement,  a
leverage  ratio  (or  core  capital)   requirement  and  a  risk-based   capital
requirement applicable to such savings associations.  These capital requirements
must be  generally  as  stringent as the  comparable  capital  requirements  for
national  banks.  The OTS is also  authorized to impose capital  requirements in
excess of these standards on individual associations on a case-by-case basis.

         The capital  regulations  require  tangible capital of at least 1.5% of
adjusted total assets (as defined by  regulation).  Tangible  capital  generally
includes  common   stockholders'   equity  and  retained  income,   and  certain
noncumulative  perpetual  Hemlock Federal stock and related income. In addition,
all  intangible  assets,  other  than a  limited  amount of  purchased  mortgage
servicing  rights,  must be  deducted  from  tangible  capital  for  calculating
compliance with the requirement.  At December 31, 1999,  Hemlock Federal did not
have any intangible assets recorded as assets on its financial statements.

         The OTS regulations establish special  capitalization  requirements for
savings associations that own subsidiaries.  In determining  compliance with the
capital requirements,  all subsidiaries engaged solely in activities permissible
for national  banks or engaged in certain other  activities  solely as agent for
its customers are  "includable"  subsidiaries  that are consolidated for capital
purposes in proportion to the association's  level of ownership.  For excludable
subsidiaries the debt and equity  investments in such  subsidiaries are deducted
from assets and capital.  All  subsidiaries  of Hemlock  Federal are  includable
subsidiaries.

         At December 31, 1999,  Hemlock  Federal had tangible  capital of $21.83
million,  or 9.64% of  adjusted  total  assets,  which is  approximately  $18.43
million above the minimum requirement of 1.5% of adjusted total assets in effect
on that date.

         The capital standards also require core capital equal to at least 3% of
adjusted total assets.  Core capital generally consists of tangible capital plus
certain intangible  assets,  including a limited amount of purchased credit card
relationships.  As a result of the prompt corrective action provisions discussed
below,  however, a savings  association must maintain a core capital ratio of at
least 4% to

                                       26

<PAGE>



be considered adequately capitalized unless its supervisory condition is such to
allow it to maintain a 3% ratio.  At December 31, 1999,  Hemlock  Federal had no
intangibles which were subject to these tests.

         At December 31, 1999,  Hemlock Federal had core capital equal to $21.83
million,  or 9.64% of adjusted  total assets,  which is $12.77 million above the
minimum leverage ratio requirement of 3% as in effect on that date.

         The OTS risk-based  requirement  requires savings  associations to have
total capital of at least 8% of risk-weighted  assets. Total capital consists of
core capital, as defined above, and supplementary capital. Supplementary capital
consists of certain  permanent  and  maturing  capital  instruments  that do not
qualify as core capital and general  valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based  requirement  only to the extent of core capital.  The
OTS is  also  authorized  to  require  a  savings  association  to  maintain  an
additional  amount of total capital to account for  concentration of credit risk
and the risk of  non-traditional  activities.  At  December  31,  1999,  Hemlock
Federal had $795,000 of general loss  reserves and no capital  instruments  that
qualify as  supplementary  capital,  which was less than 1.25% of  risk-weighted
assets.

         Certain  exclusions from capital and assets are required to be made for
the purpose of calculating  total  capital.  Such  exclusions  consist of equity
investments  (as  defined  by  regulation)  and that  portion  of land loans and
nonresidential  construction  loans in excess of an 80% loan-to-value  ratio and
reciprocal  holdings of qualifying capital  instruments.  Hemlock Federal had no
such exclusions from capital and assets at December 31, 1999.

         In  determining  the  amount  of  risk-weighted   assets,  all  assets,
including certain  off-balance sheet items, will be multiplied by a risk weight,
ranging from 0% to 100%,  based on the risk  inherent in the type of asset.  For
example,  the OTS has assigned a risk weight of 50% for  prudently  underwritten
permanent  one- to  four-family  first lien mortgage loans not more than 90 days
delinquent  and having a loan to value ratio of not more than 80% at origination
unless insured to such ratio by an insurer approved by the FNMA or FHLMC.

         OTS regulations  also require that every savings  association with more
than normal  interest rate risk exposure to deduct from its total  capital,  for
purposes of determining compliance with such requirement, an amount equal to 50%
of its  interest-rate  risk  exposure  multiplied  by the  present  value of its
assets. This exposure is a measure of the potential decline in the net portfolio
value of a savings  association,  greater  than 2% of the  present  value of its
assets,  based upon a  hypothetical  200 basis  point  increase  or  decrease in
interest rates (whichever results in a greater decline).  Net portfolio value is
the  present  value  of  expected  cash  flows  from  assets,   liabilities  and
off-balance  sheet  contracts.  The rule will not become effective until the OTS
evaluates the process by which savings  associations may appeal an interest rate
risk deduction determination.  It is uncertain as to when this evaluation may be
completed.  Any savings  association with less than $300 million in assets and a
total capital ratio in excess of 12% is exempt from this requirement  unless the
OTS determines otherwise.

         On December  31,  1999,  Hemlock  Federal  had total  capital of $23.05
million (including

                                       27

<PAGE>



$21.83  million in core capital and $1.22 in qualifying  supplementary  capital)
and  risk-weighted  assets  of  $95.50  million;  or  total  capital  of  30% of
risk-weighted assets. This amount was $15.41 million above the 8% requirement in
effect on that date.

         The OTS and the FDIC are authorized  and,  under certain  circumstances
required, to take certain actions against savings associations that fail to meet
their  capital  requirements.  The OTS is  generally  required to take action to
restrict the activities of an "undercapitalized  association" (generally defined
to be  one  with  less  than  either  a 4%  core  capital  ratio,  a 4%  Tier  1
risked-based  capital  ratio  or an  8%  risk-based  capital  ratio).  Any  such
association  must  submit a  capital  restoration  plan and  until  such plan is
approved by the OTS may not increase its assets,  acquire  another  institution,
establish a branch or engage in any new  activities,  and generally may not make
capital   distributions.   The  OTS  is  authorized  to  impose  the  additional
restrictions that are applicable to significantly undercapitalized associations.

         As a condition to the  approval of the capital  restoration  plan,  any
company  controlling  an  undercapitalized  association  must agree that it will
enter  into  a  limited  capital  maintenance  guarantee  with  respect  to  the
institution's achievement of its capital requirements.

         Any savings  association  that fails to comply with its capital plan or
is  "significantly  undercapitalized"  (i.e.,  Tier 1 risk-based or core capital
ratios of less than 3% or a  risk-based  capital  ratio of less than 6%) must be
made  subject  to one or more of  additional  specified  actions  and  operating
restrictions  which may cover all aspects of its operations and include a forced
merger  or  acquisition  of  the   association.   An  association  that  becomes
"critically  undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly  undercapitalized associations. In addition, the OTS
must appoint a receiver (or conservator  with the concurrence of the FDIC) for a
savings  association,  with certain limited exceptions,  within 90 days after it
becomes critically  undercapitalized.  Any undercapitalized  association is also
subject to the general enforcement  authority of the OTS and the FDIC, including
the appointment of a conservator or a receiver.

         The OTS is also generally  authorized to reclassify an association into
a lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound  practices or is in an unsafe
or unsound condition.

         The  imposition  by the OTS or the  FDIC of any of  these  measures  on
Hemlock  Federal  may have a  substantial  adverse  effect on Hemlock  Federal's
operations  and  profitability.  Company  shareholders  do not  have  preemptive
rights,  and  therefore,  if the  Company is  directed by the OTS or the FDIC to
issue  additional  shares of  Common  Stock,  such  issuance  may  result in the
dilution in the percentage of ownership of the Company.

Limitations on Dividends and Other Capital Distributions

         Office of Thrift Supervision regulations impose various restrictions on
distributions  of  capital,  which  include  dividends,   stock  redemptions  or
repurchases,  cash-out  mergers  and other  transactions  charged to the capital
account.


                                       28

<PAGE>



         Generally,  savings institutions,  such as Hemlock Federal, that before
and after the proposed  distribution remain  well-capitalized,  may make capital
distributions  during  any  calendar  year  equal to the  greater of 100% of net
income for the  year-to-date  plus  retained  net  income for the two  preceding
years.  However,  an  institution  deemed  to be in  need of  more  than  normal
supervision by the Office of Thrift  Supervision may have its dividend authority
restricted  by the  Office  of  Thrift  Supervision.  Hemlock  Federal  may  pay
dividends in accordance with this general authority.

         Savings  institutions  proposing to make any capital  distribution need
not  submit  written  notice to the Office of Thrift  Supervision  prior to such
distribution  unless  they are a  subsidiary  of a holding  company or would not
remain well-capitalized following the distribution. Savings institutions that do
not, or would not meet their current  minimum capital  requirements  following a
proposed capital  distribution or propose to exceed these net income limitations
must  obtain  Office  of  Thrift  Supervision  approval  prior  to  making  such
distribution.  The Office of Thrift  Supervision may object to the  distribution
during  that  30-day  period  based  on  safety  and  soundness  concerns.   See
"Regulatory Capital Requirements."

Liquidity

         All savings  associations,  including Hemlock Federal,  are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. For a discussion of what Hemlock Federal
includes  in  liquid  assets,  see  "Management's  Discussion  and  Analysis  of
Financial   Condition   and  Results  of  Operations  -  Liquidity  and  Capital
Resources."  This  liquid  asset  ratio  requirement  may vary from time to time
(between 4% and 10%) depending upon economic conditions and savings flows of all
savings associations. At the present time, the minimum liquid asset ratio is 5%.

         In  addition,  short-term  liquid  assets  (e.g.,  cash,  certain  time
deposits,  certain  bankers  acceptances  and short-term  United States Treasury
obligations)  currently must constitute at least 1% of the association's average
daily  balance of net  withdrawable  deposit  accounts  and current  borrowings.
Penalties may be imposed upon associations for violations of either liquid asset
ratio requirement.  At December 31, 1999, Hemlock Federal was in compliance with
both requirements, with an overall liquid asset ratio of 13.64% and a short-term
liquid assets ratio of 13.64%.

Accounting

         An  OTS  policy  statement   applicable  to  all  savings  associations
clarifies  and  re-emphasizes  that  the  investment  activities  of  a  savings
association  must be in  compliance  with  approved  and  documented  investment
policies and strategies,  and must be accounted for in accordance with generally
accepted  accounting  principles.  Under the policy  statement,  management must
support its  classification  of and accounting  for loans and securities  (i.e.,
whether  investment,  sale or trading) with appropriate  documentation.  Hemlock
Federal is in compliance with these amended rules.

         OTS accounting regulations,  which may be made more stringent than GAAP
require  that  transactions  be reported in a manner  that best  reflects  their
underlying economic substance and

                                       29

<PAGE>



inherent risk and that financial  reports must  incorporate any other accounting
regulations or orders prescribed by the OTS.

Qualified Thrift Lender Test

         All savings  associations,  including Hemlock Federal,  are required to
meet a qualified  thrift lender  ("QTL") test to avoid certain  restrictions  on
their operations.  This test requires a savings association to have at least 65%
of  its  portfolio  assets  (as  defined  by  regulation)  in  qualified  thrift
investments  on a monthly  average  for nine out of every 12 months on a rolling
basis. As an alternative, the savings association may maintain 60% of its assets
in those assets  specified in Section  7701(a)(19) of the Internal Revenue Code.
Under  either such test such assets  primarily  consist of  residential  housing
related loans and  investments.  At December 31, 1999,  Hemlock  Federal met the
test and has always met the test since its effectiveness.

         Any savings association that fails to meet the QTL test must convert to
a national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an  association  does not  requalify  and  converts  to a national  bank
charter,  it must remain  SAIF-insured  until the FDIC permits it to transfer to
the BIF.  If such an  association  has not yet  requalified  or  converted  to a
national  bank,  its  new  investments  and  activities  are  limited  to  those
permissible  for both a  savings  association  and a  national  bank,  and it is
limited to national bank branching  rights in its home state.  In addition,  the
association is immediately  ineligible to receive any new FHLB borrowings and is
subject to national  bank limits for payment of dividends.  If such  association
has not requalified or converted to a national bank within three years after the
failure,  it must  divest  of all  investments  and  cease  all  activities  not
permissible  for a  national  bank.  In  addition,  it must repay  promptly  any
outstanding FHLB borrowings,  which may result in prepayment  penalties.  If any
association  that fails the QTL test is  controlled by a holding  company,  then
within one year after the failure,  the holding  company must register as a bank
holding  company  and  become  subject  to  all  restrictions  on  bank  holding
companies. See "- Holding Company Regulation."

Community Reinvestment Act

         Under the  Community  Reinvestment  Act  ("CRA"),  every  FDIC  insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking  practices to help meet the credit needs of its entire  community,
including  low and moderate  income  neighborhoods.  The CRA does not  establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's  discretion to develop the types of products and services
that it believes are best suited to its particular  community,  consistent  with
the CRA. The CRA requires the OTS, in connection with the examination of Hemlock
Federal,  to assess the institution's  record of meeting the credit needs of its
community  and to take such record  into  account in its  evaluation  of certain
applications,  such as a merger or the  establishment  of a branch,  by  Hemlock
Federal. An unsatisfactory  rating may be used as the basis for the denial of an
application by the OTS.

         The federal banking agencies,  including the OTS, have recently revised
the CRA  regulations  and  the  methodology  for  determining  an  institution's
compliance with the CRA. Due to the heightened  attention being given to the CRA
in the past few years, Hemlock Federal may be required

                                       30

<PAGE>



to devote  additional  funds for investment and lending in its local  community.
Hemlock  Federal was  examined for CRA  compliance  in March 1997 and received a
rating of satisfactory.

Transactions with Affiliates

         Generally,   transactions   between  a  savings   association   or  its
subsidiaries  and its affiliates are required to be on terms as favorable to the
association as transactions with non-affiliates.  In addition,  certain of these
transactions,  such as loans to an affiliate,  are restricted to a percentage of
the  association's  capital.  Affiliates of Hemlock  Federal include the Holding
Company and any company which is under common control with Hemlock  Federal.  In
addition,  a  savings  association  may not  lend to any  affiliate  engaged  in
activities not  permissible for a bank holding company or acquire the securities
of most affiliates.  Hemlock Federal's  subsidiaries are not deemed  affiliates;
however,   the  OTS  has  the  discretion  to  treat   subsidiaries  of  savings
associations as affiliates on a case-by-case basis.

         Certain  transactions with directors,  officers or controlling  persons
are also subject to conflict of interest  regulations enforced by the OTS. These
conflict of interest  regulations and other statutes also impose restrictions on
loans to such persons and their  related  interests.  Among other  things,  such
loans must be made on terms  substantially the same as for loans to unaffiliated
individuals.

Holding Company Regulation

         The Company is a unitary  savings and loan holding  company  subject to
regulatory  oversight  by the OTS. As such,  the Company is required to register
and file reports with the OTS and is subject to regulation  and  examination  by
the OTS. In addition, the OTS has enforcement authority over the Company and its
non-savings  association  subsidiaries which also permits the OTS to restrict or
prohibit  activities  that are determined to be a serious risk to the subsidiary
savings association.

         As a unitary savings and loan holding company, the Company generally is
not subject to activity restrictions. If the Company acquires control of another
savings association as a separate subsidiary, it would become a multiple savings
and loan  holding  company,  and the  activities  of the  Company and any of its
subsidiaries  (other  than  Hemlock  Federal or any other  SAIF-insured  savings
association)  would  become  subject  to such  restrictions  unless  such  other
associations  each  qualify  as  a  QTL  and  were  acquired  in  a  supervisory
acquisition.

         If Hemlock  Federal  fails the QTL test,  the  Company  must obtain the
approval of the OTS prior to continuing after such failure,  directly or through
its other  subsidiaries,  any business  activity  other than those  approved for
multiple savings and loan holding companies or their subsidiaries.  In addition,
within one year of such  failure the Company  must  register as, and will become
subject  to,  the  restrictions  applicable  to  bank  holding  companies.   The
activities  authorized for a bank holding  company are more limited than are the
activities  authorized  for a  unitary  or  multiple  savings  and loan  holding
company. See "- Qualified Thrift Lender Test."

         The Company must obtain approval from the OTS before acquiring  control
of  any  other  SAIF-insured   association.   Such  acquisitions  are  generally
prohibited  if they  result  in a  multiple  savings  and loan  holding  company
controlling savings associations in more than one state. However,

                                       31

<PAGE>



such interstate acquisitions are permitted based on specific state authorization
or in a supervisory acquisition of a failing savings association.

Federal Securities Law

         The  stock  of the  Company  is  registered  with  the  SEC  under  the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company is
subject to the information, proxy solicitation, insider trading restrictions and
other requirements of the SEC under the Exchange Act.

         Company stock held by persons who are affiliates  (generally  officers,
directors and principal  stockholders)  of the Company may not be resold without
registration or unless sold in accordance with certain resale  restrictions.  If
the Company  meets  specified  current  public  information  requirements,  each
affiliate  of the  Company  is  able  to  sell  in the  public  market,  without
registration, a limited number of shares in any three-month period.

Federal Reserve System

         The Federal  Reserve  Board  requires all  depository  institutions  to
maintain  non-interest  bearing  reserves  at  specified  levels  against  their
transaction accounts (primarily checking,  NOW and Super NOW checking accounts).
At December 31,  1999,  Hemlock  Federal was in  compliance  with these  reserve
requirements.  The balances maintained to meet the reserve  requirements imposed
by the Federal Reserve Board may be used to satisfy liquidity  requirements that
may be imposed by the OTS. See "-Liquidity."

         Savings  associations are authorized to borrow from the Federal Reserve
Bank  "discount   window,"  but  Federal  Reserve  Board   regulations   require
associations to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Bank.

Federal Home Loan Bank System

         Hemlock Federal is a member of the FHLB of Chicago,  which is one of 12
regional FHLBs,  that  administers the home financing credit function of savings
associations.  Each FHLB  serves as a reserve  or central  bank for its  members
within its assigned  region.  It is funded  primarily from proceeds derived from
the sale of  consolidated  obligations  of the FHLB  System.  It makes  loans to
members (i.e., advances) in accordance with policies and procedures, established
by the board of directors of the FHLB, which are subject to the oversight of the
Federal  Housing  Finance  Board.  All advances from the FHLB are required to be
fully secured by  sufficient  collateral as determined by the FHLB. In addition,
all  long-term  advances  are  required to provide  funds for  residential  home
financing.

         As a member, Hemlock Federal is required to purchase and maintain stock
in the FHLB of Chicago.  At December 31, 1999,  Hemlock Federal had $2.3 million
in FHLB stock,  which was in compliance  with this  requirement.  In past years,
Hemlock Federal has received  substantial  dividends on its FHLB stock. Over the
past five calendar  years such  dividends have averaged 5.47% and were 4.74% for
calendar year 1999.

                                       32

<PAGE>



         Under  federal  law the FHLBs are  required  to  provide  funds for the
resolution  of  troubled  savings  associations  and to  contribute  to low- and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income  housing
projects.  These  contributions  have  affected  adversely  the  level  of  FHLB
dividends  paid and could continue to do so in the future.  These  contributions
could also have an adverse  effect on the value of FHLB stock in the  future.  A
reduction in value of Hemlock Federal's FHLB stock may result in a corresponding
reduction in Hemlock Federal's capital.

Federal and State Taxation

         Savings  associations,  such  as  Hemlock  Federal,  are  permitted  to
establish  reserves using an experience  method for bad debts and to make annual
additions  thereto which may, within  specified  formula  limits,  be taken as a
deduction in computing taxable income for federal income tax purposes. Under the
experience  method, the bad debt reserve deduction is an amount determined under
a formula based  generally upon the bad debts actually  sustained by the savings
association over a period of years.

         In addition to the regular income tax, corporations,  including savings
associations such as Hemlock Federal, generally are subject to a minimum tax. An
alternative  minimum tax is imposed at a minimum tax rate of 20% on  alternative
minimum  taxable  income,  which is the sum of a  corporation's  regular taxable
income (with certain  adjustments) and tax preference  items, less any available
exemption.  The alternative  minimum tax is imposed to the extent it exceeds the
corporation's  regular  income tax and net  operating  losses can offset no more
than 90% of alternative  minimum taxable income.  The Bank does not expect to be
subject to the alternative minimum tax.

         To the extent earnings appropriated to a savings association's bad debt
reserves  exceed  the  allowable  amount  of such  reserves  computed  under the
experience  method  ("Excess"),   such  Excess  may  not,  without  adverse  tax
consequences,   be  utilized  for  the  payment  of  cash   dividends  or  other
distributions   to  a  shareholder   (including   distributions  on  redemption,
dissolution or  liquidation) or for any other purpose (except to absorb bad debt
losses).  As of December 31,  1999,  Hemlock  Federal's  Excess for tax purposes
totaled approximately $3.1 million.

         The Company and Hemlock Federal file separate  federal and state income
tax returns on a calendar basis, using the accrual method of accounting.

         The Company and Hemlock  Federal  have not been audited by the IRS with
respect to federal  income tax returns in the past five years.  With  respect to
years  examined  by the IRS,  either all  deficiencies  have been  satisfied  or
sufficient reserves have been established to satisfy asserted  deficiencies.  In
the opinion of  management,  any  examination  of still open returns  (including
returns of  subsidiaries  and  predecessors  of, or entities  merged  into,  the
Company)  would not result in a deficiency  which could have a material  adverse
effect on the financial condition of the Company and its subsidiaries.

         Illinois  Taxation.  For Illinois income tax purposes,  the Company and
Hemlock  Federal  are  taxed at an  effective  rate  equal to 7.18% of  Illinois
taxable income.  For these purposes,  "Illinois  Taxable Income" generally means
federal taxable income, subject to certain adjustments (including

                                       33

<PAGE>



the  addition  of interest  income on state and  municipal  obligations  and the
exclusion of interest income on United States Treasury obligations).

         Delaware  Taxation.  As a  Delaware  holding  company,  the  Company is
exempted  from Delaware  corporate  income tax but is required to file an annual
report with and pay an annual fee to the State of Delaware.  The Company is also
subject to an annual franchise tax imposed by the State of Delaware.

Competition

         Hemlock  Federal  faces strong  competition  both in  originating  real
estate loans and in attracting deposits.  Competition in originating loans comes
primarily  from  commercial  banks,  credit unions,  mortgage  bankers and other
savings  institutions,  which also make loans secured by real estate  located in
the Bank's market area.  Hemlock Federal  competes for loans  principally on the
basis of the  interest  rates  and loan fees it  charges,  the types of loans it
originates and the quality of services it provides to borrowers.

         Competition for those deposits is principally  from  commercial  banks,
credit unions,  mutual funds,  securities  firms and other savings  institutions
located in the same  communities.  The ability of the Bank to attract and retain
deposits  depends  on its  ability to provide  an  investment  opportunity  that
satisfies the requirements of investors as to rate of return,  liquidity,  risk,
convenient  locations and other factors. The Bank competes for these deposits by
offering  competitive rates,  convenient  business hours and a customer-oriented
staff.

Executive Officers Of the Registrant Who Are Not Directors

         The following information as to the business experience during the last
five years is supplied with respect to executive officers of the Bank who do not
serve on the Company's or the Bank's Board of Directors.

         Jean M.  Thornton.  Ms.  Thornton,  age 39,  is  currently  serving  as
Vice-President,  Controller/Treasurer.  She has worked at the Bank since 1991 as
Chief Accountant, and as Treasurer since 1995.

Employees

         At December 31, 1999, the Bank had a total of 72 employees including 20
part-time  employees.  None  of the  Bank's  employees  are  represented  by any
collective bargaining agreement.
Management considers its employee relations to be good.

                                       34

<PAGE>



Item 2.  Properties

         The following table sets forth  information  concerning the main office
and each branch  office of the Bank at December 31, 1999.  At December 31, 1999,
the Bank's  premises  had an  aggregate  net book value of  approximately  $2.53
million.


                                 Year     Owned or  Net Book Value at
       Location                Acquired    Leased   December 31, 1999
------------------------------ --------    ------   -----------------
                                                     (In Thousands)
Main Office:
5700 West 159th Street           1974      Owned          $176
Oak Forest, Illinois  60452
Full Service Branches:
8855 South Ridgeland Ave.        1975    Leased(1)         165
Oak Lawn, Illinois  60453
4646 South Damen Avenue          1990      Leased          ---
Chicago, Illinois   60609
15730 West 127th Street          1998     Owned(2)        2,186
Lemont, Illinois 60439

(1)  The land on which the Oak Lawn  branch is built is leased.  Under the terms
     of the  lease,  upon the  expiration  of the  lease  in 2005,  title to the
     building  housing the branch which is currently held by the Bank, will pass
     to the landlord.
(2)  Construction of the building was completed in December, 1998.

         The Bank believes that its current  facilities are adequate to meet the
present and foreseeable future needs of the Bank and the Company.

         The Bank's  depositor and borrower  customer files are maintained by an
independent data processing  company.  The net book value of the data processing
and  computer   equipment  utilized  by  the  Bank  at  December  31,  1999  was
approximately $127,638.

Item 3.  Legal Proceedings

         From  time to  time,  Hemlock  Federal  is  involved  as  plaintiff  or
defendant  in various  legal  proceedings  arising  in the normal  course of its
business.  While the ultimate outcome of these various legal proceedings  cannot
be predicted with certainty, it is the opinion of management that the resolution
of these legal  actions  should not have a material  effect on the Company's and
Hemlock Federal's financial position or results of operations.

Item 4.  Submission of Matters to a Vote of Security Holders

         No matter was  submitted  to a vote of  security  holders,  through the
solicitation  of proxies or  otherwise,  during the quarter  ended  December 31,
1999.



                                       35

<PAGE>



                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters

        Page 48 of the Annual Report is herein  incorporated  by reference.

Item 6. Management's Discussion and Analysis or Plan of Operation

        Pages 5 through  17 of the  Annual  Report is  herein  incorporated  by
        reference.

Item 7. Financial Statements

        (a) Financial Statements

         The following  information  appearing in the Company's Annual Report to
Stockholders  for the year ended December 31, 1999, is incorporated by reference
in this Annual Report on Form 10- KSB as Exhibit 13.

Annual Report Section                                  Pages in Annual Report

Common Stock and Related Information                             48

Selected Financial and Other Data                                 3

Management's Discussion and Analysis                              5
 of Financial Condition and Results
 of Operations

Report of Independent Auditors                                   18

Consolidated Statements of Financial Condition                   19
  as of December 31, 1999 and 1998

Consolidated Statements of Income                                20
  for Years Ended December 31, 1999,
  1998 and 1997

Consolidated Statements of Changes in                            21
  Stockholders' Equity for Years Ended
  December 31, 1999, 1998 and 1997

Consolidated Statements of Cash Flows                            23
 for Years Ended December 31, 1999,
 1998 and 1997


                                       36

<PAGE>



Notes to Consolidated Financial                                  27
 Statements

         With the exception of the aforementioned information, the Corporation's
Annual Report to Stockholders for the year ended December 31, 1999 is not deemed
filed as part of this Annual Report on Form 10-K.

Item 8.  Changes in and Disagreements with Accountants on
            Accounting and Financial Disclosure

         There has been no  Current  Report  on Form 8-K filed  within 24 months
prior to the date of the most recent financial  statements reporting a change of
accountants and/or reporting disagreements on any matter of accounting principle
or financial statement disclosure.

                                    PART III

Item 9.  Directors, Executive Officers Promoters and Control
            Persons; Compliance with Section 16(a) of the Exchange Act

         Information  concerning  Directors of the  Registrant  is  incorporated
herein by reference from the Company's definitive Proxy Statement for the Annual
Meeting of  Stockholders  to be held in 2000,  a copy of which will be filed not
later than 120 days after the close of the fiscal year.

Item 10.  Executive Compensation

         Information concerning executive compensation is incorporated herein by
reference  from  the  definitive  Proxy  Statement  for the  Annual  Meeting  of
Stockholders  to be held in 2000,  a copy of which  will be filed not later than
120 days after the close of the fiscal year.

Item 11.  Security Ownership of Certain Beneficial Owners and
              Management

         Information  concerning security ownership of certain beneficial owners
and management is  incorporated  herein by reference  from the definitive  Proxy
Statement for the Annual Meeting of  Stockholders  to be held in 2000, a copy of
which will be filed not later than 120 days after the close of the fiscal year.

Item 12.  Certain Relationships and Related Transactions

         Information  concerning certain  relationships and related transactions
is incorporated  herein by reference from the definitive Proxy Statement for the
Annual Meeting of Stockholders to be held in 2000, a copy of which will be filed
not later than 120 days after the close of the fiscal year.

                                       37

<PAGE>



                                     PART IV

Item 13.  Exhibits and Reports on Form 8-K

         (a)  Exhibits


                                                                  Reference to
Regulation                                                        Prior Filing
S-K Exhibit                                                    or Exhibit Number
  Number        Document                                        Attached Hereto

2      Plan of acquisition, reorganization,
          arrangement, liquidation or succession                       None
3(i)   Articles of Incorporation                                        *
3(ii)  By-Laws                                                          *
4      Instruments defining the rights of
          security holders, including debentures                        *
9      Voting Trust Agreement                                          None
10     Material contracts:
       (i)     Stock Option and Incentive Plan                          *
       (ii)    Recognition and Retention Plan                           *
       (iii)   Employment Agreement with Executive Officers             *
11     Statement re: computation of per share earnings                 None
13     Annual Report                                                    13
16     Letter re: change in certifying accountants                     None
21     Subsidiaries of Registrant                                       21
22     Published report regarding matters submitted
          to vote of security holders                                  None
23     Consent of Experts and Counsel                              Not required
24     Power of attorney                                           Not required
27     Financial Data Schedule                                          27
28     Information from reports furnished to state
          insurance regulatory authorities                             None
99     Additional Exhibits                                             None

----------------

*        Filed as exhibit to the Company's Form S-1 registration statement filed
         on December 27, 1996 (File No. 333-18895)  pursuant to Section 5 of the
         Securities  Act of 1933.  All of such  previously  filed  documents are
         hereby  incorporated herein by reference in accordance with Item 601 of
         Regulation S-K.

             The Company did not file any reports on Form 8-K during the quarter
ended December 31, 1999.

                                       38

<PAGE>
                                   SIGNATURES

         Pursuant  to the  requirements  of  Section  15(d)  of  the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                        HEMLOCK FEDERAL
                                        FINANCIAL CORPORATION


                                        By:  /s/ Maureen G. Partynski
                                           ------------------------------------
                                           Maureen G. Partynski, Chairman of
                                           the Board and Chief Executive Officer
                                           (Duly Authorized Representative)

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the dates indicated.

  /s/ Michael R. Stevens                        /s/ Kenneth J. Bazarnik
----------------------------------           ----------------------------------
Michael R. Stevens, President,               Kenneth J. Bazarnik, Director
  Chief Financial and Accounting
  Officer and Director

Date:    March 29, 2000                      Date:    March 29, 2000

  /s/ Rosanne Pastorek-Belczak                  /s/ Charles Gjondla
----------------------------------           ----------------------------------
Rosanne Pastorek-Belczak,                    Charles Gjondla, Director
  Vice-President/ Secretary
  and Director

Date:    March 29, 2000                      Date:    March 29, 2000


   /s/ Frank A. Bucz                            /s/ G. Gerald Schiera
----------------------------------           ----------------------------------
Frank A. Bucz, Auditor/                      G. Gerald Schiera, Director
   Consultant and Director

Date:    March 29, 2000                      Date:    March 29, 2000





<PAGE>



                                  Exhibit Index

     Exhibit
       No.               Document
     --------            -------------------------------
       13                Annual Report
       21                Subsidiaries of Registrant
       27                Financial Data Schedule